Are Foreclosures Contagious?

Abstract

Significant foreclosure activity in a weak housing market area is a sign of trouble, suggesting potential subsequent neighborhood decline. This article focuses on an under-researched question of whether higher foreclosure rates in a neighborhood tend to spill over into adjacent neighborhoods. The authors detail exploratory spatial methods to identify where potential spillover effects occur: kernel density surfaces, space-time local indicators of spatial association (LISA) and LISA Markov. Using data for Franklin County, Ohio the authors find that foreclosure rate hotspots are concentrated in lower-income, more African-American central city areas. The majority of hotspots (around 90%) persist over time and space but about 10% of all hotspots are consistent with contagion effects between neighboring areas. Only 1-3% of neighborhoods experience spillovers as below-average to above-average cluster transitions. In general, contagion effects occur in areas with higher rates of African-Americans, poverty and lower median home values and incomes. However, the authors also observe a sub-trend suggesting possibly accelerated hotspot growth in otherwise comparable Caucasian areas.